ING Worksite Zone, Distribution week of 12/17 Field and Home Office / IFFA Reps

Transcription

1 12/24/07 revisions ING Worksite Zone, Distribution week of 12/17 Field and Home Office / IFFA Reps Mutual Fund Restitution Process Soon to Begin for ING Retirement Plans Late trading and market timing (also known as excessive trading ) have been the subject of much regulatory and media scrutiny. In 2004, the Securities and Exchange Commission (SEC) entered into settlement agreements with approximately two dozen mutual fund companies and related parties in connection with excessive trading alleged to have occurred between 1998 and Some of the affected funds were used during that time in ING s Defined Contribution retirement plans and some of our customers may receive payments from the settlements. In addition, some of our current customers may have been customers of other plan providers who offered some of these funds during this time period and as a result, they may receive payments directly from the Fund or from prior service providers, and may request ING s assistance in properly handling such payments. These customers may or may not have been serviced by ING during that time period so some of our customers may receive settlements from other providers. Also, other customers may have read about these settlements and expect reimbursement they are not qualified for, or find that their settlement payment is less than they expected. For more information about the impact on ING customers, click (HERE). C R (12/07) More Detail about Mutual Fund Restitution ING expects to be involved directly in at least four such settlements MFS, Janus, Invesco (Fund Companies) and Conseco (a product manufacturer). MFS settlement payments for retirement plan customers may begin to be mailed as early as February, 2008, but our initial and tentative analysis of the data is that a relatively small number of our customers were affected in a significant way and very few plans and individuals will receive payments. While the actual dollar amounts of the settlements overall (as published in the media) may seem substantial, the actual allocated payment to individual plans and participants may be relatively small or may not be enough to warrant a payment at all under the terms of the Distribution Plan(s) (generally payments below $10 are considered de minimis ). Before payments are mailed to ING customers for settlements in which we are involved, we will send a communication to affected Plan Sponsors alerting them about the possibility of the settlement(s) and describing ING s standard procedures for reinvesting the settlement payment in the plan. We will also post procedures to the Plan Sponsor Web site.

2 Individual Salary Reduction 403(b) and IRA customers may receive settlement payments as well, and we will also communicate with them before they receive their checks, instructing them that the monies should be forwarded to ING (or their current qualified plan provider) for deposit into their retirement accounts. The payments themselves will also be mailed with instructions. When payments are mailed from a Fund Company s independent Fund Administrator (as we expect them to be in most cases), ING will not have the opportunity to review the accompanying instructions. As these are released, we will post a link to the Settlement s website (if any) on the VFC /i-port so any materials from the Fund Administrator are available to you and to our Customer Contact Centers. Following is a more detailed description of the reimbursement process, and a high-level diagram of how it works. As we know more about settlement timings, amounts and affected customers, we will use standard communication vehicles and protocols to make sure that our Field employees and distribution partners understand the impact to -- and options for -- their customers, and that our Customer Contact Centers are equipped to handle questions and provide direction. Background and ING s Role in Facilitating Payments Most settlements resulted in the creation of a Fair Fund to reimburse shareholders harmed by the market timing. A Distribution Plan for calculating shareholder harm and a plan for distributing the Fair Fund must be prepared by an Independent Distribution Consultant (IDC) retained by the Fund Company. When the Distribution Plan has SEC approval, a Fund Administrator ( FA, also retained by the Fund Company) oversees execution of the Distribution Plan. Plan providers like ING have responsibilities to identify affected plans and relevant activity during the restitution period to help the IDC calculate the dollar amounts of the payments. In most cases, the Fund Administrator (not ING) will mail the checks to the Beneficial Shareholders. Specific funds involved are not known until the SEC has approved each Distribution Plan as a fund may not have been harmed by the excessive trading activity. If the payment to ING s group (omnibus) trading account is relatively small, then ING may be required under the Distribution Plan to calculate the allocation payment and distribute the checks but most payments will be distributed by the Fund Administrators, not ING. Furthermore, if the IDC s calculated payment to a specific omnibus (group trading account) is below $1,000, then that is considered de minimis and no payment is made to the group trading account so there are no dollars to distribute downstream to any shareholders (retirement plans/ Salary Reduction 403b or IRA participants) underlying that group trading account. Because the payments are calculated based on the actual harm done on each day of the restitution period, simply having a fund in a retirement plan does not guarantee a substantial payment, or a payment at all if there were no assets invested, or if the calculated payment amount would be considered de minimis (too small to distribute).

3 The de minimis amount is generally $10; any payments calculated to be less than $10 for a retirement plan or individual would not be paid out, but the payment returned to the Fund Administrator to be handled as described in the Distribution Plan. Several of the two dozen settlements have already been approved by the SEC and distributions made, however ING has not been directly involved in these. As previously mentioned, some of ING s current customers may receive settlement payments from fund companies ING did not offer, either directly from those fund companies or from a prior service provider; these customers may have been advised to contact their current provider (ING) to make arrangements for handling the settlement payment, and will need to determine how to distribute the funds (see below) before sending us the check. ING was recently contacted by MFS regarding their Distribution Plan and has begun to prepare required data. Actual payments under the MFS Distribution have started for some of the affected MFS shareholders (retail account shareholders receive payments first) while payments for retirement plan customers are not expected to start being distributed until at least February. SEC approval of each Distribution Plan and the actual distribution of plan-level payments may take more than a year to complete for the remaining Settlements. It s important to understand that in general, a Distribution Plan recognizes a retirement plan (not the plan participants) as the Beneficial Shareholder to receive the allocated settlement payment from the Fund Administrator. It is the Plan Sponsor s responsibility to determine how these distributions should be allocated to the plan or plan participants. A Dept of Labor Field Advisory Bulletin (FAB ) provides guidance to ERISA retirement plan fiduciaries as to how each distribution payment can be handled; for example, if it is a small amount the Plan Sponsor may decide to use it for Plan expenses, in the case of a sizeable payment the Plan Sponsor must determine how the check should be allocated to plan participants. In cases where there is no employer involvement in a retirement plan (such as 403(b) salary reduction only plans in the education market), the beneficial shareholder payee is the trustee for the benefit of the individual participant and while such checks will be mailed to the participant, the participant must then deposit the check in their retirement plan rather than cashing it. Communication materials developed by each IDC/Fund Administrator will be included along with any payment check. Before checks are mailed by the MFS Fund Administrator, ING will mail letters to all Plan Sponsors involved in the MFS distribution, alerting them of the possibility of receiving a MFS restitution payment, reference to the DOL guidance and the need for the Plan Sponsor/fiduciary to decide how to handle the check. If the Plan Sponsor/fiduciary decides to allocate to participants, ING s standard capability will be to allocate the restitution payment across all active participants based on their account balances as of a specific date. We will work with Plan Sponsors who request alternate allocation solutions, which will be available on an hourly rate basis.

4 As the dust settles and we have additional information about these payments and affected customers, we will update you about which Distribution Plans have been approved by the SEC, which of your Plans are involved and the general timeline for those distributions.

5 How a Distribution Plan Works

6 * Accounts (called Omnibus Accounts) represent the assets in a fund for a group of shareholders such as all particip Retirement Plan(s) or all contract holders within a Separate Account. The IDC first identifies the settlement amount due the Group T Account and then using historical data from the (restitution period) plan provider, the IDC allocates settlement amounts to the Bene Shareholders (Retirement Plan or Salary Reduction 403(b)/IRA participant) within that Account. The Fund Adminis (FA) oversees distribution of the payments. Total Settlement Amount from Fund Company X Fund 1 Eligible to receive settlement Eligible Fund 2 Funds not eli receive settle Account A Account Payment more than $10,000 Process A Account B Repeat Process A Independent Distribution Consultant (IDC) calculates allocations and the Fund Administrator (FA) distributes payments, unless payment is de minimis (less than $10) NOTE-If a Beneficial Shareholder is due a payment from more than one eligible fund, they will receive multiple checks from the same Settlement * Account B Account Payment less than $10,000 Account C Process B de minimis (under $1,000) payments returned to Fund Although some m abuses may have fund covered by th the IDC may have that the amount o insufficient to warr Account Payment sent to ING ING calculates and distributes payment (many will be de minimis and not distribut F.A. sends payment to Plan Sponsor Est MFS Plan Ave=$2500 de minimis (under $10) payments returned to Fund F.A. sends payment to Salary Reduction 403(b) / IRA participant Retirement Plan de minimis (under $10) payments returned to Fund Individ Salary Re 403(b) partici Plan Sponsor/ Fiduciary decides how to allocate payment Salary Reduction 403(b) / IRA participant receives settlement check Plan Sponsor decides to use payment for Plan expenses -OR - Plan Sponsor decides to allocate to participants; Sponsor seeks assistance from current Plan provider.

7